CAPITAL GAIN EXEMPTION U/S 54

CAPITAL GAIN EXEMPTION U/S 54…..




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CAPITAL GAIN EXEMPTION U/S 54

Query 1]

I have booked a flat jointly with my wife for Rs 40 Lacs & paid Rs. 4 Lacs as booking amt in May 10 .I have again paid Rs. 3 Lacs as part amount in July-2010.

I will sell a flat in my sole name in October-2010 for Rs. 22 Lacs & pay the amount for the new flat. Please inform whether I will be eligible for Capital Gain exemption under Sec 54 for the amounts paid in May & July-2010 or not? [sandhirdk@canbank.co.in]

Opinion:

  1. To be eligible for Long Term Capital Gain (LTCG) Exemption U/s 54 of the I.T. Act-1961, assessee has to purchase a residential house property within a period of one year before or two years after the date of transfer (or construct a residential house within a period of three years from the date of the transfer of the original house).
  2. In your case, if the above conditions of purchase within a period of two years from the date of transfer of original assets (i.e., from October-2010, as proposed) is satisfied, you will be eligible for exemption even in respect of amount of Rs. 4 Lacs & Rs. 3 Lacs paid by you in May & July-2010.

Query 2]

Sir, I am an LIC Agent by profession. I have a query regarding the recent tax reforms that has recently taken place. My question is whether presently the maturity proceeds or any kind of survival benefits from LIC policies are taxable in the hands of the customer or not? If yes, when it is going to be applied from which date? Kindly elaborate if it is yes? [aqualai@yahoo.com]

Opinion:

  1. Presently, any sum received from life insurance policies, including a sum allocated by way of bonus on such policies, are exempt u/s 10(10D) of the I.T. Act, 1961. However, following payments received from life insurance companies are not exempt:-
    a) any sum received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured
    b) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA
    c) Any sum received under a key-man insurance policy.
  2. The new Direct Tax Code (DTC), proposed to be made applicable from 01.04.2012, is tabled in the parliament. The same has not yet been passed. We will cover the post DTC scenario in our column after it is passed by the Parliament.

Query 3]

I have a query regarding long term capital gain. Kindly clarify. The facts are as under: –

  1. I had purchased a house for Rs. 8 Lacs in Nov-05.
  2. I want to sell the same for Rs 30 Lacs & invest the same amount for purchasing other house.
  3. Out of the sale proceeds of Rs. 30 Lacs, I will remit Rs. 7 Lacs  to the bank as present outstanding loan amount on the said flat.
  4. Out of the balance amount of Rs. 23 Lacs, I will keep Rs. 3 Lacs in Hand.
  5. Balance Rs. 20 Lacs will be use for purchase of new house property. The new property will be costing Rs. 30 Lacs. I will be utilizing Rs. 20 Lacs out of the proceeds of my earlier house & will avail housing loan of Rs. 10 Lacs for the balance.

Please guide me if there is any long term capital gain tax liability on me? [kunjsuresh@yahoo.co.in]

Opinion:

  1. Cost Inflation Index for the relevant financial years are as under:
F.Y. C.I.I
2010-11 711
2005-06 497

(It is presum that you want to sell the house in the current F.Y. 2010-11 & figures are calculated on this presumption only.)

  1. The indexed cost of acquisition in the given case shall be Rs. 11,44,467/- (8,00,000/– *`711/497).
  2.  The Taxable Long term Capital Gain shall be Rs. 18,55,533/- [30,00,000/-  (–) 11,44,467/-].
  3. As you are purchasing a new house and investing the LTCG for purchase of new house property, you can claim an exemption u/s 54. You may further refer opinion expressed in response to query No. 1 wherein time frame within which investment is require is elaborate.

A Word of Caution

It may be note that u/s 80C(5)(iii) if assessee sell the house before the expiry of five years from the end of the financial year in which the possession of the property is obtaine then
a) no deduction u/s 80C shall be admissible to such assessee in respect of the year in which transfer is effecte AND
b) the aggregate amount of deductions allow in earlier years shall be DEEM to be the income of the assessee of the year in which the property is sell and shall be liable to be tax accordingly.

However, such sale does not in any way impact the deduction allowed for interest paid on the housing loan but its only reverses the deduction allowed on the principal portion.
Effectively, if you sell the house property before 31.03.2011, it may result in additional tax liability on account of additions to current year’s income of the deduction allowed u/s 80C in the earlier years towards principal repayment of housing loan.

CAPITAL GAIN EXEMPTION U/S 54

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